Improved DAO Free Cash Flow/Net Income Allocation Proposal

[EricM]

This new governance proposal attempts to substantially improve the economics and long-term value add to MC token holders by changing the allocation and use of the ‘free cash flow’ / ‘net income’ generated from the DAO.

Author

Eric Mancini, CFA, CAIA, CFP, Director of Investment Research; Traphagen Financial Group

Summary

As an overview, I and other MC token holders, believe the current use of ‘free cash flow’ or ‘net income’ (which we are defining as funds received from the DAO over and above what is needed for reinvestment or to cover maintenance expense) does not provide maximum value for long term token holders or the DAO itself . Similar to high quality equities (also cash flow producing entities) there is substantial evidence/research that the most economically beneficial use of free cash flow or net income (outside of reinvestment back in the business) fall into three categories . These include 1- S hare buybacks (if management feels market price is undervalued), 2- Dividend Payments to shareholders, and 3- in select cases accumulation of some amount of liquid high-quality assets to keep in Treasury for future operations, defense, investment, acquisitions, etc.

I am proposing the following to align MC free cash flow/net income allocation away from the current framework and towards what is historically recognized as the best economic use of free cash flow with some flexibility given to the DAO:

Abstract

Below are the details of this proposal for the use of all future ‘Free Cash Flow’ /'Net Income’

In each reporting/allocation period (whether monthly or quarterly) the DAO can allocate FCF/NI within the following guidelines. At the discretion of the DAO; given MC token valuation, price, and other market conditions there is the flexibility for a 5% adjustment up or down to these target percentages.

• 50%: Allocation to directly pay token holders in BTC, ETH, or USDC (same hard crypto assets mentioned above) as a ‘dividend’ and source of true passive income from DAO operations to token holders. Long term research confirms that the discipline and passive income a true dividend provides adds value for shareholders of dividend paying companies and the same would apply to a cash flowing DAO. Further I will highlight another crypto cash flowing token (KCS) which has adopted this mandate and provided greater value accretion and lowered token volatility.
• 20%: Allocation to ‘hard crypto assets’ to be stored in the Treasury (only BTC, ETH, and USDC would be considered for this purpose); no more than 50% of this allocation can be used to purchase ETH (100% could be purchased in the form of BTC or USDC)
• 30%: Allocation to burn and permanently eliminate MC tokens from total supply . If the DAO views tokens as undervalued (especially if current market cap is near or below Treasury value) the use of FCF/NI to eliminate tokens from circulation via burn should be accretive to remaining long term token holders.

Complete Elimination of ‘Artificial Price Support’ : This practice is not economically beneficial outside of possibly temporarily propping up token prices that could help short term holders/traders. Eventually this allocation would be ‘wasted’ resources to token holders and the DAO as the true market price will be realized eventually and the tokens bought on the open market (now held in Treasury) would reduce to true market value to the detriment of the DAO itself and long-term token holders.

Motivation

The motivation for this proposal is to greatly increase the long-term value proposal to long term MC token holders and the token price/DAO itself in addition to attracting a whole new subset of investors (passive income & fundamental). In addition, this would eliminate the ‘waste’ (in our opinion) of free cash flow/net income used in the form of temporary ‘artificial price support’.

We think this proposal builds and improves upon the prior free cash flow/net income proposal (MIP-7) in terms of using historical evidence in the equity market and emerging evidence in the cash flowing crypto market that a combination of token burns (supply reduction) and true dividend payments to holders creates discipline on the part of the DAO and provides strong support for holding MC over the long term on a fundamental basis . In addition, it provides for the build up of ‘hard Treasury’ assets for future defensives/offensive use.

• The Treasury additions via the accumulation of USDC, BTC, and ETF is permitted (with a limit on ETH). This provides the ability for both offensive and defensive hard asset future uses.
• This proposal provides a true passive income (hard asset crypto dividend) to token holders. This both encourages a completely new investor base, anchors the token with true fundamental value, and reduces risk of misuse of funds by the DAO . This also should have the effect of reducing volatility of the tokens and increasing long term token value.
• The proposal also uses free cash flow to reduce circulating supply with token burn.
• As importantly, this proposal eliminates the use of free cash flow/net income for artificial price support. This practice is not used in the equity market to any material degree. This is at best an inefficient use of funds and at worst a near total waste of net income/free cash flow, as the tokens are simply bought on open market at artificially high price, stored in Treasury, and then when true value is eventually realized DAO loses value . This practice adds no value to long term token holders in our opinion and there is no historical evidence to support this practice.

Rationale

Are there any crypto native tokens that have enacted a similar free cash flow practice? If so, what have been the results?
Yes, one of the best examples is Kucoin (KCS) tokens . This is a crypto exchange that uses 50% of gross trading revenue to pay a daily dividend to token holders. In addition, it takes additional revenue to burn tokens. Since they have enacted this fundamental free cash flow use (similar to cash flow producing stocks) it has performed very well and attracted many new investors with the quality of the value proposition to hold long term . Since 3/1/2021 BTC is down 23%, ETH is up 73%, while KCS is up 300%. In addition, it has experienced drawdowns and volatility either comparable or superior to BTC/ETH over the past year . Over the past year the token has also moved up from the 90 – 110 spot on Coinmarketcap.com to the current spot of 58. A large contributor to all these advantages has been a build-up of a long-term fundamental token holder base built on supply burn and dividends.

Why is the ‘price support’ inferior to the ‘token burn’?
Whereas stock buybacks (akin to token burns) have been used to increase the value of cash flow producing stocks for decades (AAPL great example) , purchasing shares on the open market slightly below current prices to store in Treasury (not burn) has not been practiced. This is because eventually the stock/token will always go to true value eventually and if the DAO purchases MC tokens at an artificially high price, holds these tokens within the Treasury, and then absorbs losses when they move to ‘true value’, that is value lose to token holders and the DAO. T oken purchases and burn will create true supply reduction and sustainable long term value accretion to token holders as assuming steady or increasing cash flows/book value, the smaller amount of tokens in existence will produce a sustainable higher token price.

Why should the DAO pay a ‘hard crypto true dividend’ to token holders?
Like with cash flow producing stocks, many investors look for passive income as a reason to invest (especially in current environment). Combine this passive income and fundamental backdrop, along with a growing crypto native gaming/Meta/NFT DAO; this creates a very strong investment case for a larger set of long-term investors. In addition, paying out 50% of the free cash flow to token holders eliminates the possibility for any misuse or value destruction with a portion of free cash flow and gives more power/choice to token holders.

Budget

No spending/budget outlay is needed

Copyright
Copyright and related rights waived via Creative Commons CCO

[kabramanan]

Firstly, thanks for the proposal,

Points I like:

• Dividends: Individuals can decide whatever they wanna do with those USDC dividends, instead of relying on the DAO to always perform the same MIP-7 operations.
• Agree that limit orders dont reallly help the long term price, also DAO currently has no use of those MC tokens.
• Burning, instead of limit order will greatly decrease FDV.

Questions:

• Will this completely replace MIP-7?
• Will we try coordinating with CEXs to distribute dividends to CEX token holders?

Percentages we can modify according to what DAO sees fit.
We can have vote before every month and decide how much to burn, give dividend, how much to keep based on market conditions.

[newoc]

Just a line of thought, we have token holders and we have staked token holders. I believe the purpose of a staking program was to provide benefits to “long-term” holders so would it be beneficial to call upon existing setups to distribute profits to long term holders instead? From a technical perspective, I’m not sure if distributing rewards in btc/eth/usdc to stakers is possible but it should be fairly simple to allocate the 50% back into the staking pool in MC tokens(which equates to a need for the continuation of some form of market buybacks). Not to mention, this will reduce the need for collaboration with cexs on the distribution of rewards. I believe KCS also distributes their dividends in KCS tokens.

[tyghh]

I feel this proposal is not geared to the longterm success of Merit Circle DAO but more to short term gains for tokenholders.
Stakers who lock their tokens for 52 weeks are taking tokens out of circulation and that way supporting the price. Holders who just hold the tokens can move away from the project by selling whenever they want.
They dont provide any additional value to the project and there for should not receive additional dividends. If you want to support the DAO and make good gains…stake the tokens and lock them up as that aligns best with the long term view the DAO and Merit Circle team have.

[HoneyBarrel]

Henlo,

I agree with tyghh. Also this doesn’t benefit long term stakers, and seems to be a short term cash method. That’s not long term. Also you’ll be a security this way I am pretty sure, and will make CEX delist.

My 2 cents,
Honey

[huoguoshen]

I don’t support a dividend for 2 reasons:

1-I have a different experience to what the proposal claims. A dividend only supports valuation if it is stable and predictable (say a REIT, a telecom). In the nascent crypto gaming industry, nobody has any idea what the cash generation of the assets can be, not how sustainable. The dividend has no predictability, can be zero or minimal, and so does not provide any valuation support.

2-Complexity: distributing dividend is a hassle for the DAO, they should be spending their time sourcing deals instead. It is also a hassle for many small token holders who may not even know how to collect it.

The two areas I support in the proposal are:

-I support buybacks, because currently the dilution is brutal.

-Kill price stabilization. MC is a long term project, do not waste money to support trading.

Finally, DAOs are going wild in complexity on how to use funds, with members putting fwd megacomplex proposals. I do no not envy the CFOs. I support simplicity, and I would support a proposal that says all cashflow should go to buybacks to neutralize dilution, and if anything left keep it for reinvesting.

huo

[EricM]

Hi all, and thanks for all the feedback on my proposal to the DAO! Must say, a great process for bringing an idea to the table and an engaged and for open DAO discussion.

I wanted to address what seems to be the main issues in terms of the replies to this point 1-1:

1- Staking/Long vs. Short Term Staking system: This new proposal will have no impact at all on the current staking regime. The current staking system involves the distribution of already minted tokens between long term and shorter term holders (which I agree). The system rewards long term holders with greater token yield vs. shorter term holders/traders with less token yield. These token distributions are not related at all to free cash flow/net income of the DAO of which this proposals rests.

2- Incenting Long Term vs. Short Term ownership: My main reason for introducing this proposal was to incentivize long term ownership and introduce a longer term focused/fundamental investor base to hold MC.

The main tenants of this would be to eliminate the artificial price support (wasting of net income/free cash) and only helps short term holders traders at the expense of long term holders. No fundamental long term value add from this price support practice and right now this is a large use of free cash flow/net income which reduces fundamental long term value of MC.

Second main tenant of this proposal is with the proceeds that would have been used for artificial short term price support in the past, will be used for a mix of long term value add in the future. These include:
1- Smaller use (but still important) for Treasury build up of ‘hard crypto’ assets (BTC, ETH, USDC); with emphasis on BTC/USDC
2- Larger use for token purchases and burn on the open market (this can have to some extent the same short term impact as ‘price support’ , however with the long term impact of permanently removing tokens from total supply. (AAPL, BRK.B, GOOGL, etc.) are great examples of this.
3- Dividend payment from cash flow (on top of Staking); this also obviously is used by hundreds of profitable equities and some enterprising and successful crypto native tokens. Dividend payments strongly encourage long term holders, attract a whole new long term holder base, eliminate risk of free cash flow misuse, given token holders more choice on their investment proceeds, and provides higher discipline to DAO itself.

Hopefully this answers some questions on the long term vs. short term impact of this, as this is the main tenant of my proposal (to maximize long term value of the DAO and to maximize choice and value for long term holders).

Thanks

Eric M

[EricM]

Hi Huo,

Although I do like the dividend aspect and think it would be advantageous for several reasons, I agree 100% with your two main points. They are by far the most important to me as well in terms of an end to the price support allocation and replace that allocation with buyback/burn.

[Wrathed]

While in principle, I think there are some good ideas here, I think a lot needs to be reworked. My initial thoughts below.

1. A greater allocation should go to the treasury. Early on we should be less focused on dividends to holders and instead providing more money that can be reinvested back to the MC ecosystem. Money is needed for investments into games, developing internal games, etc. We want to build many verticals within MC for the long term, not focus on immediate distribution. MC should be focused on what P2E gaming looks like over the next 10 years and needs funds to be able to allocate accordingly. In addition, KCS and MC are two very different business models, which needs to be taken into consideration when comparing tokenomics.

2. For some sort of “dividend” I think it should follow the Illuvium model. Use funds to market buy MC and distribute to stakers. This provides buy side pressure to the coin and rewards truly long term holders. A dividend for all incentivizes short and long term holders the same. I also believe that 50% is way too high for this to start.

As the proposal stands, I would vote ‘No’ as I believe it is more detrimental to long term success than it is focused on providing passive income to holders.

[SadCatCapital]

Meow,

We’ll be voting against this proposal. We’re in it for the long run, and we value the MC ecosystem and token too much. We rather focus on constant value accrual and re-investments. There’s no need to distribute dividends in this manner, in fact we believe that doing so would be removing value from the MC ecosystem.

The staking system is there for a reason, and rewards the most loyal ecosystem participants as intended. On top of that, pushing cashflow proceeds to regular MC token holders would be quite the regulatory nightmare. We’d like to stay far away from that.

In full agreement with @tyghh and @HoneyBarrel.

Sad Cat Capital will be voting “ no ”.

Signed with right paw,
Mr. Bigglesworth

[AdmiralErik]

Greetings @EricM ,

This is Admiral Erik von Pumpson of the MC Enterprise. Our Dreadnaught warship is stuck on the icy planet Draconis 4, in the Sigma Draconis star system. I hope you receive our messages well.

We don’t want the SEC to destroy our MC by promising ‘dividends’, and we do not want to jeopardize Binance, Kraken, and other (possibly future) CEX listings by voting for a dividend distribution proposal. On top of that, you seem to not believe in the long-term staked MC hodlers, and are mostly interested in a way to gain extra short-term yield on holding (and not staking) MC.

Other than the regulatory risks associated with this idea and implementation, you’d also have to take in account CEX and centralized entities gaining yield on this as well. I do not agree with the ideas.

Our entire fleet will vote “no”.

Signed,

Erik von Pumpson
Admiral of the MC Enterprise
Ascending Galactic Federation

[jimmysimage]

MIP - 7 has been greatly enhance the value of the MC potential, we have to repurchase the MC, which can greatly eliminate the FDV, eventually forming model deflation, help long-term holders interests, if the dividend is MC, it also should be assigned to a pledge for a long time, and should add lock period, give a long-term profit distribution with MC is worth it, Short-term vested interests will only hurt MC’s future, but to be honest, I absolutely MC’s FDV is a little high, of course, I am very optimistic about MC

[Cryptolawyer]

First of all, pretty fun to see a wealth manager in New Jersey writing this up - good to see engagement in the DAO from around the world. Overall I think the proposal touches upon some interesting topics, but also tricky ones from a regulatory standpoint, so one should thread with caution (although in principle not necessarily undoable). Obviously, this proposal raises some points that need further digesting, but my main thoughts so far are as follows:

• The definitions “FCF/NI” need some sharpening, as they are paramount for the entire proposal. I assume you mean funds received “by” the DAO and e.g the words “reinvestment” and “maintenance” are somewhat ambiguous (think better wording could be chosen given the importance of the definition). It is also somewhat unclear what is the timespan for considering whether the funds are needed for investments etc. (next month, in two months, more/less?). There should also be included a reference to who makes the decision as to whether funds should be spent elsewhere (assuming the core contributors/team?).

• As pointed out by a few already, in certain jurisdictions (e.g. the US, as the 3rd prong of the Howey test, reasonable expectation of profit, would likely be satisfied), the introduction of a traditional dividends regime could imply that the DAO (tokens) end up being classified as securities or other types of financial instruments. For this particular DAO, this would mainly imply that certain token holders would not be entitled to hold the token, as it would not fulfil the requirements set for securities (or other classifications of financial instruments). Whereas in other jurisdictions, it is not given that this is an issue at all. There are some interesting regulatory implementations in process, including in the EU/EEA in respect of what is to be classified as a financial instrument or how to treat crypto assets not considered financial instruments. If classified as a financial instrument, there is also a risk that certain CEXes will end up delisting the token or shut down trading for certain jurisdictions.

• I am not sure if a fixed 50% allocation of FCF/NI to dividend payments is the most sensible solution. It is probably not advantageous for the long-term view of the project to commit to a certain percentage (the 5% up and down does not mitigate my worry here), e.g. if the DAO needs additional funds to invest or develop or need to have reserves because the general market is doing poorly. It could alternatively be structured so that the DAO proposes a distribution at certain times (e.g. monthly, quarterly or other (even at team’s discretion)), which then the holders vote on whether should pass or not. One could also introduce a minimum and max cap of profits that may be distributed to holders, or a range which might be voted on by the token holders.

• The proposal necessitates further thinking on how to deal with any mercenary holders. Whales may come in periodically, make the snapshot, collect the distribution and then sell the token (and then repeat). This is not entirely uncommon within equities either actually. Perhaps the holder would need to hold the tokens for a certain period or lock them up.

• I do not think that is accurate that MIP-7 de facto imposes an artificial price support scheme, as the tokens bought back are either (i) distributed to token holders throughout staking (and by that prolonging the staking scheme) or (ii) burned. Thus, although the DAO’s buybacks naturally have an implication on the price, the price action is an indirect consequence of the buyback (which is mainly conducted for these other purposes as far as I understand it). I therefore think that the points regarding price support may be based on a slight misunderstanding. You can of course disagree in the percentage portion utilised to purchase back tokens, but that is a different story.

I am – as other token holders – for ideas bringing direct value back for token holders, including also dividends, if possible from a regulatory standpoint. I do not think that this is necessarily a dead-end from a regulatory standing point and I think there may be ways to structure this for the (long-term) holders’ benefit, but will need some careful thinking.

As you see from my input above, I think there currently are too many uncertainties and unanswered (critical) questions to let this one pass by vote. Therefore, I think that we should take-away the good inputs and ideas shared as a result of this proposal, and continue to discuss going forward. I do not think that we are in a rush at this point, as we momentarily have the staking scheme which incentivises long-term holding. Happy to discuss this topic more going forward though.

[EricM]

Hi Cat in the Hat (aka SCC),

I agree with you that the all the funds that are needed for reinvestment back into the DAO be used for that purpose. This is only referring to the free cash flow/gains up and above that amount that are currently being used mainly for ‘price support’ that is more short term orientated.

This proposal in no way impacts that mount of funds to be used for reinvestment/growth vs. token holder returns. The same amount as always (per current governance will be used for reinvestment/growth), this only impacts the gains/free cash flow portion allocation/use.

I strongly believe a large portion of the current free cash flow/gains being used for price support is long term value destructive and better used in some combination of dividends and/or token purchases/burn, and treasury build.

Thanks

[huoguoshen]

Yes, the price support rules, token buyback rules, burning, dilution, are the most complex items currently in the DAO.

Frankly, I don’t think anyone (including me) understands the impact, for example:

if the DAO assets/treasury appreciates 50% in 2022, what should be the impact on the fair price of the token? No idea. Dilution, buybacks, token distributions, token treasury, token burn rules…fair value also up 50%, 100%, down 50%…? impossible to figure out.

I asked in the latest Treasury report for a NAV per token, so we can see the evolution of Treasury vs token NAV, but no response so far.

[Cryptolawyer]

Hi Eric!

Agree with your general view on price support solely for the sake of price support, but as stated in the final bullet point of my initial response, I think your point regarding price support may be based on a misunderstanding/misreading of MIP-7. As far as I can see, the main purpose of the tokens bought back (and not burned) is not to provide a price support per se, but to utilise them mainly (or only) for prolongation of the staking rewards scheme. The creation of a price support is merely a consequence of executing buybacks through limit orders below market price. Non-burned tokens are currently intended to be circled back to holders through the staking rewards scheme, but can be utilised for other purposes as well (the point is however that nothing is bought back just for the sake of buying back to create a price support).

[EricM]

Hi CLawyer,

Thanks for the very detailed and thoughtful response. Will address each on of your bullet points with my thoughts on each:

1- Definition of FCF/NI: This proposal is not looking to redefine what is deemed free cash flow/net income from the current definition at all. Last reporting period from Treasury report there was deeemd $1.6M in ‘net income’ that was used for Treasury purchases, burns, and token price support. This proposal would keep the $1.6M exactly the same. This proposal only addresses the use of these proceeds in accordance with current definition.

2- Security designation of the Dao: Personally I think as the DAO stands now, is clearly a security with token holders holding for profit and receiving value add currently through token burns and Treasury/NAV increases. Dividends might strengthen the already made case in my opinion, and that is why I am ok dropping the dividend component of this proposal as long as token price support is cut.

3- Dividend 50% & use of funds in time of need Again, my main issue with current free cash flow/net income use is the artificial price support aspect, but that being said I do think a dividend supports fundamental value and supports lower volatility, greater token holder choice, greater discipline by the DAO, and attracts long term income investors. Again, I am willing to drop the dividend out of proposal if that means getting rid of price support. Also on your concern of 'what if we need income for reinvestment/defense, etc. this falls again into the not changing the definition of free cash flow/net income for the DAO. If there is no free cash flow gains per current guidelines/rules there would be no dividend paid.

4- On Whales collecting token and then selling: I don’t really view this as much of an issue, as a person trying to collect a monthly dividend but then immediately selling each time after it was paid would incur significant trading costs/fees, large bid/ask spread costs, most likely negating any dividend income value. In addition, most dividend investors tend to be longer term investors. Also this is practice is useless as the token would drop (all else equal) in the same amount as the dividend payment each time paid.

5- Lastly on the price support/staking scheme: In my opinion there is a reason that no stocks offer this type of use for free cash flow. It is a zero sum game and hinders free market dynamics, overly complicates ownership, incurs large costs for stakers (via transfers, ETH fees, etc), whereas a very simple, free market, and proven value add system has proven to add value over the longer term. I always to look to what has worked in the past and would try to implement here, we are losing a lot of potential investors with this practice IMO (huge complication in staking, non-economical costs for small stakers, etc.) vs. the model of all stocks and very successful models like KCS in the crypto space.

In summary I am ok not having a dividend as long as we end the price support/staking scheme, do not think it add any fundamental value and it is extremely cost-inefficient, limiting, and counterproductive to the DAO and its tokenholders.

Thanks

Eric M

[jimmysimage]

Hi Eric!

I kind of understand what you are saying. Given the current price support of MIP-7, you seem to think that this will affect more investors to enter, and the dividend payout can attract more potential long-term investors to come in. So the core issue here is to return to the value of MC tokens, and ultimately how to enhance the value of MC and empower MC more? Just like many other coins, they are just governance tokens without real value. Buyback, dividend and price support are all means. Who can discuss which one is more beneficial to MC’s long-term development? And the MC as a value anchor in the game ecosystem?

[wtrap]

EricM,
Your proposal is very refreshing to see. I too believe that a dividend would make MC more attractive to new buyers while rewarding long term holders. Not to mention incentivizing those who don’t currently stake their MC to do so, providing price stability. The argument that a dividend would make MC an SEC target is not as concerning to me because by all accounts MC should ALREADY be an SEC target for regulation. In addition and most importantly to me is the ending of the price support. Seems just like a very complicated/costly and convoluted semi-dividend scheme to me. Thanks for bringing this and I will be voting yes.

[Cryptolawyer]

Re. 1. Understood, but I think that there actually is a change, ref. the wording that follows “which we are defining as…”. However, I do now understand what you meant in this respect.

Re. 2. Not necessarily the case, as the law (including case law) in this respect is not clear cut. I do however see that you can make arguments to that effect (at least from an US law perspective, which I assume is the perspective that you are viewing it from). Note however that e.g. the SEC does not bear judicial power in this respect. In practice it is not actually for them to determine whether something is a security or not, and they really want digital assets to be characterized as securities, so most guidances/analysis’ published by them may be somewhat biased. Even if the tokens were in the risk of being considered securities under e.g. US law, MC could make suitable actions/precautions; one course of action would be to note and caveat that MC is not registered with the SEC and is not marketed to or available for purchase by individuals domiciled in the U.S. (just an example). Obviously, neither MC nor the SEC could ever prevent US citizens from actually purchasing the token as long as the tokens are listed on DEXs (as for CEXs, I guess US citizens in such case would be blocked from making trades, whilst others could carry on, provided the legislation in their jurisdiction opens for it). I will not go into all details here, as the legislation also varies a lot in between jurisdictions – e.g. the general position of the EU/EEA is far more hospitable to crypto, and US is currently risking ending up lagging behind EU/EEA going forward (see e.g. the proposed MiCA regulations).

Re. 3. As mentioned a couple of times already, there is no de facto artificial price support, see my final bullet point in the first response and entire second response. The tokens bought back are either dropped back in the staking pool or burned. They are not just laying their idle. As for the text in bold in your point no. 3; note however that per the current MIP-7, 20% of the proceeds are going back to the treasury for the purpose of making new investments, whilst pursuant to your proposed set-up, 100% of the proceeds are utilized for various purposes – so there is a difference.

Re. 4. I am not sure about this one – perhaps you are right, but there is in my view a valid risk for big players exploiting the set-up in a profitable manner in this respect. I think this would more preferably be structured to reward long-term holders (e.g. higher rewards for those locking-up tokens, or those going through more distribution rounds without selling the token etc.).

Re. 5. I do not think that it is accurate to compare the token to stocks when making this point, as there are some vital differences between traditional corporations with stocks and the MC DAO. Firstly, there is no limit in terms of how many stocks an entity can issue (can always carry out new share issues), whereas there for MC is written in the code that the total supply can never exceed 1bn (the FDV is fixed). Buybacks with the purpose of burns therefore result in a fixed deflationary outcome (not necessarily the case for traditional corporations and therefore buybacks generally do not make sense for such corporations). Secondly, the staking enables holders to counter dilution until all tokens are in circulation. I do not think that there exists any legislation where a staking rewards scheme for stocks would even be legally possible – new stocks may only be issued against a capital contribution or contribution-in-kind. Therefore, there are really no clear valuable use cases for stocks bought back in a traditional corporation, whereas there are for the tokens bought back by MC.

As stated previously, I do generally like ideas that may bring more value back to token holders, e.g. through a distribution scheme where other assets than the native token are distributed to holders (that would potentially minimise sell pressure, as holders would not have to sell the MC token to actually realise profits). But as mentioned, this is intricate from a legal perspective and should be carefully thought through by legal teams before making any definitive decisions. We should not rush into this, but rather explore it together going forward (also legal teams should preferably be approached here, and I am sure MC are doing their diligence and reviewing various ways to reward their holders).